Should You Buy or Lease?

Deciding to invest in a new set of wheels is just the beginning of a long string of choices. Should you buy or lease? If buy, new or used? What about the interior: fabric or leather?

While we can’t speak to your upholstery preferences, we can offer tips that will save you time, money and stress. (We also have a few helpful ideas about car insurance, too!)

Lease or buy?

Although the decision to buy or lease comes down to money for most people, Ron Montoya, consumer advice editor at edmunds.com, advises auto owners to look beyond the dollar amount. “It depends on your lifestyle, how you treat your car and how long you plan to keep it,” he says.

Buying may be the perennially popular choice, but leasing continues to gain traction. (Right now, a quarter of all drivers are going this route.)

Typically, leasing is a good option if you:

Don’t want to worry about repairs—if they happen, the warranty usually covers them.

Consistently drive an average number of miles per year (between 10,000 and 12,000).

Have a stable income and don’t mind payments with no set end date.

Also consider these pros and cons:

Leasing

Pros

Cons

Less or even no money down and lower monthly payments.

A new car every few years.

Low to no maintenance costs.

Resale value doesn’t matter.

A tax deduction for small businesses.

May require a higher credit score.

May contain hidden monthly costs like taxes or fees when you turn the car in.

Mileage cap (and penalties if you’re over the limit).

If you decide to buy the car, it’s more expensive at the end of the lease than if you bought it outright.

If leasing seems like the choice for you, also keep in mind the following:

Although most leases allow 12,000 miles per year, many now offer as little as 10,000. Make sure you know exactly how many miles you can drive as penalties can run upwards of 15 cents per mile. Yikes!

Lease companies offer several time periods in which to pay your lease. According to edmunds.com, a three-year lease is often best since most manufacturers’ warranties cover at least that long.

Some manufacturers will offer incentives on cars that aren’t selling well, so make sure to ask your car dealer about them.

You pay taxes and fees monthly on a lease versus initially when buying, so make sure you get the actual monthly payment with taxes and fees before making any decisions.

If buying is more your style, you’re in good company. “Ownership is in our nature,” says Dave Freeman, vice president of personal lines underwriting at ERIE. “Americans want to be able to say ‘I own it’ rather than ‘I’m borrowing it.’”

Buying is typically a good idea if you:

Are okay with driving your car well after its paid off.

Drive more than 12,000 miles per year.

Want to recoup some of the money when you sell.

Also consider these pros and cons:

Buying

Pros

Cons

It’s all yours.

The payments stop once the
car is paid off.

You’ll avoid the extra
charges that can come
with leasing.

More money due at signing
and higher monthly costs.

Repair and maintenance expenses.

Depreciation incurred if you
plan to resell the car when it’s
paid off.

If you’re still on board to buy, keep this information in mind:

Make sure you know the total cost of the car, not just the monthly payment. “Ask your dealer for the out the door price,” Montoya advises. “That number includes the payment, taxes and any other fees associated with the purchase.”

Negotiate before you discuss financing. In some cases, dealerships will offer a different price if they assume you’re financing through them.

Ask about financing options. Dealerships often offer their own financing, so they may steer you in that direction. Just keep in mind that local credit unions and banks can offer competitive rates.

New or used?

According to cars.com, drivers will buy about 14 million new cars in 2012. If you think you might be among those shopping for a brand-new vehicle, consider a few things first.

New Car

Pros

Cons

Newer safety features.

Customizable.

Better warranty.

Typically has better fuel
efficiency and lower emissions.

More expensive to insure.

Maintenance costs required
to maintain warranty.

No record of reliability.

Higher taxes.

Also know that a new car isn’t out of the question if you’re shopping largely on price. “Most people think used cars are less expensive, but that’s not always the case,” says Montoya. “Many used vehicles are priced high because of shortages due to people keeping cars longer in tough times. This makes their prices comparable to new cars.”

Before you go through with a new car sale, keep these things in mind:

Many car manufacturers offer rebates on new cars, so ask your dealer about them.

Check your invoice for added costs or fees, and talk to the dealer if you see things you didn’t request such as fabric or rust protection. Most dealerships charge destination charges to deliver your car to the dealership – but some will waive it.

If new is not your thing, consider used—after all, nearly 37 million previously owned vehicles changed hands in 2011.

Used

Pros

Cons

Less expensive to insure.

More car for your money.

CarFax® vehicle history
report provides detailed
history of the car.

Older safety features.

More frequent repairs.

Not customizable.

Remember to also:

Research the vehicle’s history. Many dealerships offer CarFax® vehicle history reports to give you peace of mind. “All vehicles have issues,” Montoya says. “Finding out what you can deal with is the key.”

Ask about a warranty. Some used cars come with the factory warranty while some don’t. Better to ask than to assume.

Beware of the extended warranty. Many dealerships offer them (but not all buyers need one) while other certified used vehicles come with an existing warranty. In the long run, you’re usually better off saving for expenses than shelling out for an extended warranty.

Whether buying or leasing, be sure you’re prepared to pay taxes and registration fees, which can amount to thousands of dollars depending on the cost of your vehicle. And always get the facts. “Resources like edmunds.com and the Kelley Blue Book are very helpful in assessing the value of a vehicle,” Freeman says. “And don't overlook the help your ERIE Agent can give you about the final price of a vehicle, how to properly insure it and what the difference in insurance will be if you’re deciding among several vehicles.”

Car insurance you can count on

We all know new cars depreciate fast (by most estimates, about 15 to 20 percent every year).i If that’s not bad enough, consider the fact that the compensation a standard auto insurance policy provides may only be enough to purchase a used car as a replacement—or that you could be liable for lease payments on a car that’s completely totaled.

Lease/loan security: Covers the difference if you owe more on your vehicle than its current value and it’s a total loss. Coverage also applies to vehicles on lease or auto loan for up to seven years.

Replacement cost: Pays to replace your car if it is two years old or less and is a total loss. You’ll receive a new car of the same make and model—and if the model is no longer available, you’ll get a similar vehicle.iii

Repair coverage: ERIE will pay to repair your vehicle without a deduction for depreciation if it’s two years old or less and not a total loss.

ihttp://www.bankrate.com/brm/news/auto/20011226a.aspiiThis endorsement must be added to a new vehicle within 60 days of the lease/purchase of the vehicle and the Policyholder must have purchased comprehensive and collision insurance coverage. This endorsement is not available in New York or North Carolina.iiiNot available on leased vehicles.

Deciding to invest in a new set of wheels is just the beginning of a long string of choices. Should you buy or lease? If buy, new or used? What about the interior: fabric or leather?/blog/to-buy-or-leaseErie Insurance